Sims Limited

Welcome to the SIMS Limited half-year results release. Today's presentation may contain forward-looking statements, including statements about financial conditions, results of operations, earnings outlook and prospects for SIMS Limited. These forward-looking statements are subject to assumptions and uncertainties. Actual results may differ materially from those experienced or implied by the forward-looking statements. Those risk factors can be found on the company's website www.simsltd.com. As a reminder, SIMS Limited is domiciled in Australia and all references to currency are in Australian dollars unless otherwise noted. I would now like to hand the call over to Alastair Field, Group CEO and Managing Director of SIMS Limited.

Thank you and good morning for the presentation of the FY23 half year results for SIMS. Joining me on today's call is the Group Chief Financial Officer, Stephen Mickelson. The slide presentation that we will run through has been lodged with the ASX, along with the results released. The agenda for today is that I will run through a general overview of performance and the highlights. I'll then hand over to Stephen, who will take us through our financial results before I take a closer look at the green steel momentum. I will conclude with the outlook in the short term and macro trends. Following that, there will be time for Q&A. Before I turn to slide five, which covers the key takeaways from the first half, I'd like to briefly say a few words about the recent earthquakes that struck Turkey and Syria, causing significant harm and suffering. Our thoughts are with all of those affected by this tragedy. Turkey is our largest ferrous market, accounting for 36.5% of ferrous sales volume in HY23. Five steel mills are located in the vicinity of the earthquake zone, and they represent approximately 20% of the country's ferrous production. We understand that while the steel mills are not damaged, they are not currently operating. Three cargoes were destined for these mills. Two of them have already been redirected to other locations, and one is currently under review. Although 80% of Turkey's production is largely unaffected We are closely monitoring the impacts of the earthquake on the metal markets. Turning now to slide five. It has been a challenging trading and operating environment for the first six months of FY23. I am, however, pleased with the resilience of the business and what it has shown. EBIT was above our guidance, provided at the AGM due to an overall stronger performance from the final two months of the period. I am pleased with the strong operating cash flow, even though this was expected due to a reduction in working capital from clearing inventory and lower metal prices. As always, it is very pleasing to see a continued improvement in safety to new records of performance. Turning to slide six. It was a period of significant metal price reductions and tight scrap availability that significantly squeezed trading margins. These challenging trading conditions, combined with a persistently high inflationary environment, led to a material reduction in all our profit measures. This is plain to see on this slide. Underlying EBIT was down 74% and metal operating costs were up 18%, partly impacted by new business and an increased footprint. Proprietary sales volume increased, mainly out of North America, as we reduced inventory levels aided by better freight logistics. This assisted in working capital reduction and increased operating cash flow by 10.7%. Moving to slide seven. Slide seven provides a summary of the financial outcomes in a convenient table. I've already spoken about the profit measures on the previous slide, So I will only add that we are paying 14 cents per share interim dividend, consistent with our approximately 50% payout ratio. On the next few slides, I will talk about non-financial measures, starting with health and safety on slide eight. As I've repeatedly said in prior presentations, the health and safety of our people is a huge priority for all SIMS employees. It is pleasing to see that the half-and-half lagging indicators continue to improve. The total recordable injury frequency rate has improved to below 0.9, and this is world-class. This level of performance is achieved through a great safety culture and focusing on getting the critical risk areas right, such as the investments we have made in traffic management controls. Moving now to slide nine on sustainability. Sustainability is at the core of our business, and it is pleasing to see further recognition for the effort that our employees put into ensuring that SIMS is a leader in sustainability. There are many measures, initiatives, and cultural behaviors that drive outcomes which lead to these awards. We have continued to make good progress on our three sustainability-focused areas. Operate responsibly, close the loop, and be a partner for change. Before I hand over to Stephen, I'll turn to slide 10, which sums up the markets in the first half. The charts highlight a couple of important points that resonate throughout the current half-year results. Firstly, the dramatic fall in ferrous prices from their record peak in April last year in the high 600 US dollars per tonne all the way down to the low 300s as we started FY23. There has been some sign of recovery as we finished the year in the low 400s. Solver prices declined slightly in the first half of 2023 compared to the prior period. Secondly, export freight prices have fallen, reflecting better logistics overall, and that assisted us to reduce inventory. I will hand over to Stephen now to take us through the results in more detail.

Thanks, Alastair. I will turn straight to slide 12 which summarises the group results and some key metrics. Lower sales revenue was predominantly driven by a much softer average fairest price, down 12.3%. The lower sales price, combined with stiff competition for available scrap, reduced the overall metal trading margin by 12%. When this reduction was combined with 18% higher costs in the metal business and a 62% reduction in the contribution from SA Recycling, The impact was a 74% reduction in EBIT to $93.3 million. On slide 13, for convenience, we summarized EBIT and volumes by division. To avoid being repetitive, I will turn straight to the more detailed slides. Looking at our North America metal result on slide 14, intake volumes were down, but sales volumes were up, reflecting a solid reduction in inventory. Trading margin decreased 8.6% despite a benefit from foreign exchange translation. That same foreign exchange translation benefit adversely impacted operating costs, which were up 18%, excluding the impact of the acquired ARG business. Overall, EBIT was down 73.4% to $37.8 million. Turning to slide 15, ANZ also reduced inventory with flat sales volumes, but a 4% decline in intake volumes. The trading margin was down by nearly 16% for similar reasons to NAM. However, ANZ managed to hold cost increases to 6%, a respectable outcome given the level of inflation during the period. Overall, EBIT was down 44% to 53 million. The UK is presented on slide 16. Once again, the trading margin was down for similar reasons to NAM and ANZ, with one exception that it was further adversely impacted by foreign exchange translation. Due to some significant foreign exchange translation movements, we have inserted a constant currency table comparison for the UK, NAM and SA recycling in the appendix on slide 41. Operating costs were up significantly in the UK, particularly when adjusted for foreign exchange translation. While some of this is from the opening of shuttered yards and some one of costs, there is no doubt that the UK has been more severely hit by inflation than NAM and ANZ. The combined impact of lower margins and higher costs pushed the UK into a loss-making EBIT of $3.6 million. On to slide 17. The recurring theme for the SLS business has been the lockdown in China, severely impacting resale prices. This continued throughout the first half. And while China has opened up, it is not clear when the market will normalise. Trendforce, an external party, forecast this to be the end of calendar 2023. I remain cautious about this prediction. The good news is that repurposed units grew half on half by 38.5%. And there was also a near 29% sequential half growth. Moving to slide 18. SA Recycling was negatively impacted for very similar reasons to NAM. It is worth noting that there was a $6 million benefit in HY23 compared to half year 22 from reconciling US GAAP to international standards under which SIMS reports. This benefit will continue into the future. I've also highlighted on this slide for the first time SA Recycling's gearing. Despite significant acquisitions over the last few years, its gearing has remained relatively stable. reflecting strong cash flow generation to pay down debt used to fund these acquisitions. Turning briefly to slide 19, there are only two points I want to highlight. Firstly, Sims Municipal Recycling was significantly and negatively impacted by lower plastic and paper prices. From November, as a result of a restructure into a much larger entity, we no longer equity account for SMR, and you will notice from the accounts is now classified as an asset held for sale. Secondly, while LMS had a strong first half, this was largely timing and we are not expecting a material contribution from the second half. Moving to our cash generation on slide 20. The main story on this slide is the release in working capital of around $187 million as inventory levels were reduced and prices for ferrous also reduced. Inventory reduction is clearly shown in the chart on the bottom right-hand side of the slide. Moving to slide 21. The strong operating cash flow reduced net debt from 102.7 million down to 33.4 million, despite distributing over 110 million in dividends and buybacks. It is worth noting that the large final dividend paid in October 22 utilised our available franking credits, so the half year 23 interim dividend of 14 cents per share is unfranked. My final slide is capex on slide 22. At the AGM, we forecast full year sustaining and environment capex of 170 million, down from 220 million forecast at the August results presentation. We are on track to achieve this, having spent 92.4 million in the first half. I'll now hand back to Alastair.